Q4 2021 Ranger Oil Corp Earnings Call
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Good morning.
And welcome to the Ranger Oil Corporation fourth quarter and full year 2021 earnings conference call all participants will be in listen only mode.
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I would now like to turn the conference opened a Ranger oil. Please go ahead.
Thank you and good morning, everyone I'm Clay you all saw director of Investor Relations for Ranger Oil Corporation, and we're pleased today to discuss our fourth quarter and full year 2021 operational and financial results as well as recent accomplishments with me today Darrin Hinky, our president Chee.
Executive Officer and director.
Also joining us and available for a Q&A session are Rusty Kelley, our senior Vice President Chief Financial Officer and Treasurer.
And Julie Julia <unk>, our senior Vice President and Chief operating operating officer.
Before we begin I would note that today, we will discuss certain non-GAAP measures definitions and reconciliation of these measures to the most comparable GAAP measure are provided in the company's fourth quarter and full year earnings presentation and press release that can be found at www Dot Ranger oil I'd call out.
Our comments today are also contained forward looking statements within the meaning of the federal Securities Law. These statements are subject to a number of risks and uncertainties that could cause actual results to materially differ from those forward looking statements, including those identified in the risk factors of the company's annual report on Form 10-K .
So with that I'll hand, it over to Darren to discuss our results and recent events Darrin.
Thank you clay, we appreciate everyone joining us today during the call My comments will generally follow our earnings presentation that we posted on our website late yesterday.
2021 was a transformational year for the company and I want to thank the entire range of our employee team for their continued hard work and dedication.
Their collective efforts allowed us to execute a number of strategic initiatives and transactions that further reinforced rangers position as an industry, leading operator squarely focused on capital discipline and continuous improvement to drive top tier cash on cash returns further.
Strengthening our financial position.
Turning to page four our company looks very different today relative to the beginning of 2021.
Complemented by the closing of our highly accretive Lone Star and Rocky Creek acquisitions. We ended 2021 with a footprint of more than 140000 net acres in the core of the Eagle Ford shale that produced more than 40000 barrels of oil equivalent per day during the fourth quarter.
This vast acreage position provides ranger with an estimated 20 years of high quality drilling inventory.
14 years of that inventory projected to be profitable even at $50 per barrel W. Ti pricing.
Our total proved reserves at year end equaled 241 million barrels of oil equivalent.
With oil accounting for 68% of those reserves.
92 million barrels of our reserves are considered proved developed looking at the estimated value of those total proven reserves, we have a PV 10 value of $4 7 billion using $80 for oil and $4 for gas.
Given that our enterprise value is approximately $2 2 billion I believe our current equity represents a rather compelling value opportunity.
We had many significant operational and financial accomplishments in 2020 , one as evident on slide five of the presentation.
The initiation of our in basin consolidation strategy resulted in the acquisition of Lonestar resources, which we purchased at a discount to PDP and a much lower price environment. As mentioned this contributed to expanding our estimated drilling inventory to approximately 20 years assumed.
50 wells drilled per year.
In addition, our acquired acreage and the ongoing success of our targeted capital spending and operational improvement programs contributed to growth in total proved and proved developed reserves of 90% and 82% respectively.
Using $80 flat pricing, a PV 10 calculation of our proved developed reserves net of debt yields approximately $39 per share in the PV 10 of total proved reserves net of debt was estimated at $94 per share.
Our success on the development and operational fronts helped drive performance in 2021, resulting in the top adjusted EBITDAX margin as compared to all other U S independents contributing almost $110 million of free cash flow for 2021.
As important our leading position allowed us to materially transform our balance sheet by accessing the unsecured debt markets to term out and refinance the majority of our debt.
We also reduced our debt under the revolver by more than $100 million in 2021.
Further we simultaneously enhanced our liquidity position be a 90% increase in our borrowing base, which is currently $725 million with less than $150 million drawn net of cash.
Drilling completion and field operational efficiencies also contributed to our outperformance on.
On slide six we list some of the highlights from 2021, including drilling efficiencies that resulted in the quickest rig move the fastest smile drilled the most vertical feet drilled in a day and the fastest to strength and three string wells drilled in our central area spud to total depth.
We increased our average footage drilled per day by 19% as compared to 2020.
We also saw significant efficiencies on the completion side, including.
Including testing modified designs that utilize and increased casing diameter and higher injection rates are designed we all transition to for future wells.
We were also achieving a record $8 four frac stages per day, and completing our longest lateral to date of 11756 feet.
The collective result of these efforts resulted in an average completion cadence of 7.2 frac stages per day, a 20% improvement versus 2020.
Complementing the improvement seen in our drilling and completion activities.
Slide seven conveys how we also continued to drive down our field operating costs well, we are clearly seeing the cost synergies afforded by our consolidation efforts.
We continue to prudently invest in proven technologies to drive further cost efficiencies.
Such as jet pump installations annular gas lift ongoing field compression upgrades and other production management initiatives designed to bend the curve and decrease the natural decline rate of our wells.
Referencing page eight our relentless pursuit of further efficiencies in our operations has resulted in our ability to consistently report the highest adjusted EBITDAX margin of any publicly traded independent in the United States.
Contributing to our results as our differentiated acreage position in the core of the Eagle Ford.
That provides a high oil cut and the ability to receive premium MGH pricing given our close proximity to key Gulf coast markets.
Slide nine summarizes why we view Ranger is an extremely compelling investment opportunity the.
The combination of our industry, leading margins multi decade drilling inventory and efficient capital development program provides us with significant runway to drive further strength in our balance sheet and the ability to use our expected significant free cash flow generation to provide increased value for our shareholders.
In 2020 , one our capital program developed $19 9 million barrels of proved reserves and an attractive cost of only $12 27 per barrel of oil equivalent given the capital. We spent on drilling those wells compared to the cash flow they generate in 2021 and the estimated cash flow from the future.
We calculate an implied capex return on investment ratio of approximately three seven times at $70 flat oil price.
Given our proven operational and financial success and the outlook for ongoing substantial free cash flow generation, we expect to hit our one times leverage target in the first quarter of 2022 ahead of schedule at.
At current commodity prices, we expect to generate over $250 million in free cash flow.
We plan to deploy that free cash flow in several ways.
First we plan to authorized $100 million share repurchase plan in the second quarter.
Then we expect to continue deleveraging the balance sheet, providing the ability to pursue potential consolidation opportunities.
Finally, we intend to initiate a fixed dividend of 25 cents per share annualized beginning in the third quarter.
We believe these planned uses of excess cash flow provided investors with a highly compelling investment opportunity.
On slide 10, we provide illustrative potential asset value based on FCC pricing as of December 31, 2021, and a flat price deck of $80 per barrel and $4 per Mcf.
Our current enterprise value of roughly $2 $2 billion represents an approximate 35% discount to our total proved SEC PV 10 value based on SEC pricing.
Using a flat price deck of $80 per barrel and $4 per Mcf our market value is trading at an approximate 50% discount to the total proved PV 10 of approximately $4 7 billion.
Did I hear potential increases even further when you consider additional probable and possible reserves shown here at P. B 20.
We have considerable value potential, particularly relative to our current share price.
It is important to note that these estimates do not include additional locations in other benches and formations, including more than 200 estimated locations in the upper Eagle Ford and Austin chalk that are in close proximity to industry activity.
Turning to slide 11, as I mentioned previously we currently have approximately 20 years of estimated drilling inventory roughly 975 identified locations.
We believe we have 10 years of inventory with each and every well generating an estimated well level internal rate of return greater than 100% at $80 per barrel flat pricing and should commodity prices pull back.
70% of our inventory has an estimated breakeven at $50 per barrel or lower.
We also display on this slide the third party reserve engineer type curves for our drilling plan for the next two years, we expect the wells in this program to also generate greater than 100% well level rates of return, assuming an approximate $9 million of capital investment per well.
We believe the quality and depth of our inventory competes very favorably with other E&P companies.
Looking at Slide 12, we're also seeing overall, 15% outperformance from the wells, we drilled in 2020 , one compared to our type curves.
Drilling and completion improvements and ongoing operating efficiencies demonstrate an approximate 10% increase in EUR per.
Her foot since 2019.
On Slide 13, we show three high potential inventory rich areas for Ranger.
These consolidated positions allow for longer laterals with multi well pads and shared facilities, which we believe will generate higher returns.
Recent wells in these areas exhibit peak 30 day initial productivity rates over 1000 barrels of oil per day with a 90 day average IP rate equally impressive ranging from 752 900 barrels of oil per day.
Combined we have almost 250 future drilling locations in these three areas.
Turning to slide 14, we provide the details surrounding our low leverage and robust current liquidity profile supported.
Supported by our targeted acquisition development and operational efforts over the past three years, we have seen a dramatic increase in our generation of free cash flow. We expect this to meaningfully accelerate in 2022.
Combined with a debt maturity schedule that does not require repayment until more than three years out we are very comfortable with our plan to begin returning meaningful levels of capital to our shareholders.
Our continued success in 2020 , one as exemplified by our strong production and margins combined with our robust inventory of high rate of return drilling inventory.
Ports are all oak generating over $250 million of free cash flow in 2022.
We will continue to allocate our free cash flow based on the most attractive risk adjusted opportunities.
As shown on slide 15, our investment strategy is multifaceted, including <unk>.
<unk> organic capital expenditures.
Further enhancing our financial position through continued deleveraging.
Returning capital to our shareholders through a fixed quarterly dividend.
And opportunistic share repurchase program.
And continued pursuit of accretive transactions that expand our operational footprint in the Eagle Ford.
Our return of shareholder capital is targeted to begin following our achievement of a leverage ratio of less than one times, which we expect at the end of the first quarter.
We plan to begin the company's first ongoing quarterly cash dividend program in the third quarter targeting a quarterly dividend payout of 6.25 cents per share or <unk> 25 per share annually.
We also plan to return capital to our shareholders through a share repurchase program of $100 million or approximately 6% based of market cap to opportunistically repurchase shares in the open market.
Finally, we will continue evaluating opportunities to expand our market position through targeted acquisitions.
Of course and as in the past our strategy continues to remain squarely focused on long term shareholder accretion rigorous capital discipline balance sheet strength robust cash on cash returns and operating in an environmentally and socially responsible manner.
On that last point I am pleased to report that we look forward to releasing a comprehensive sustainability report in the second half of this year.
We view protection of the environment as one of our top priorities and continue to advance our operating initiatives on multiple fronts.
Inclusive of minimizing flaring, reducing emissions and the potential for oil spills by transporting a significant portion of our production to be a pipeline as well as conducting daily well inspections.
We also will utilize multi pad and longer laterals to reduce our environmental footprint.
We also promote a work culture that treats all employees fairly and with respect promotes inclusivity and provides equal opportunities for professional growth and advancement all based on merit.
As a result of this culture for the six members of our executive team are women, including Julia Gwaltney, who was recently promoted to Chief operating officer.
Turning to page 20, when we first announced the Lone Star acquisition, we projected over $20 million in annual synergies I'm pleased to report we now estimate the synergies will actually be closer to $25 million per year over the next five years.
We have already high graded operations, increasing the combined company's per well lateral length restructuring a number of lone star's marketing and midstream contracts and consolidating much of the operations of the two companies.
In conclusion, I could not be prouder of what the Ranger team has accomplished their continued hard work and dedication have resulted in a differentiated eagle Ford focused exploration and production company.
<unk> lead position for long term success.
I truly appreciate their efforts and look forward to working closely with them to take the company to new Heights.
So with that we will open up the call to questions operator.
We will now begin the question and answer session to.
To ask a question you May press Star then one on your telephone keypad. If you are using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Our first question is from Scott Hanold with RBC capital markets. Please go ahead.
Thanks, Hey, good morning, all just a question on page 15, obviously, you have a pretty well defined.
What your strategy is and and you also previously talked about in this presentation.
The value disconnect debts are in Rangers' stock and if you step back and you think about like all the different levers and knobs you guys can pull in turn like what do you think is going to have.
Is your target to do what is the targeted thing you youre going to look to do to be.
Basically bridge that valuation gap, what do you think is going to have the most influence on it is it you know just executing and driving free cash flow or do you think like something like a stock buyback.
Tension could be you know a bigger opportunity for you to bridge that gap.
That's a great question.
Got you know I think it's really an all the above that we're showing here on on slide 15, you know the marketplace are changing daily here all around us looking at commodity prices and a lot of a lot of change going on in the world right now and I think I'm being flexible and pivoting to which one of these makes the most sense at the time when we have the <unk>.
Free cash flow, that's the way, we're going to look at things, we would love to.
See an increase in our scale scale is relevance, we'd like to see more consolidation but.
You know we are we have with these other initiatives shareholder friendly initiatives that we've initiated between the dividend and share buybacks. You know we are we have other options for investment over and above our capital program over and above consolidation so really in all the above strategy.
Okay and then my follow up question is as you know obviously in the A&D market and in many markets you guys have been very proactive and can you talk about what youre seeing in the market and how that plays into some of the uses of cash options like stock buyback. So you know would you guy.
As you know is the bar a little bit higher on on deals for you guys. Now that you you plan to have a buyback authorization in place.
I don't think the share buyback authorization changes the way, we're looking at acquisition opportunities or consolidation opportunities, where we're going to stay the use the same disciplined approach looking for accretive acquisition opportunities you know what the commodity price run the <unk>.
Price to do consolidations, certainly is changing daily and we have great options. We look at just about everything in the Eagle Ford that comes available we're not going to win them all and that's okay. We're going to do the smart accretive deals in and we're going to look at those opportunities relative to the intrinsic value of our of our company and our ASP.
Base and does it make sense to do the consolidation or does it make sense to repurchase shares.
Got it and then could you just give us a color on that the M&A market right now and what you're what you're seeing.
You know we are theres definitely deals in the marketplace and we're active in and.
Really can't say much more I think outside of there'll be transactions occurring and hopefully we're part of that but we'll see.
Thank you.
The next question is from Neal Dingmann with Truest. Please go ahead.
Good morning.
Hey, Rusty could you you guys talked a lot about there's a lot of potential efficiencies. So I'm just wondering could you talk about it in the guidance sort of things that you've seen for the remainder of the year how much of that are you already factoring in.
Are you talking about the drilling.
Drilling and completion of our operational efficiencies or yeah, you're exactly right Nick.
Exactly right, given what I think you're going to.
The longer laterals. These pads you know don't you guys.
Outlined to nice laundry list I think you can actually have more than others and I'm. Just wondering with that are you and Ross you already including that in you know kind of what you're thinking about with the free cash flow guide for.
For the year. If you are if you just kind of talk about some of the things that's incorporated in that guide.
Yes. So we're certainly we're really proud of this year relative to development as we're transitioning to materially longer laterals and up over 30% longer laterals on average this year versus last year and in fact in the first quarter. Some wells that we finished drilling them around the end of the year then completed them here in the first quarter, they're actually.
Average lateral length of 12800 feet with one of them is over 14000 feet. So we've shown already this year that we can execute on these very long laterals and we can get them fracked drill plugs drilled out and were just turning those wells online as we speak.
When you switch and transition to those a longer lateral program.
It takes some time to get those first few pads drilled out of course, and then completion timing, it's quite a bit longer and when you're when you're increasing the lateral length about 50%. So you've seen a little lull in our turn in lines here in the first quarter and that's impacted the first quarter production to Tad, but youll see youll see that production.
Wrapping up later in the year end.
We've built all that into our into our guide.
Yeah.
Okay, and then could you talk a little bit about I know, we've talked the last time, a little bit about this that third rig could you talk about if you know prices start to continue to escalate and then could you just talk about plans around that how flexible that is what what you know just give us some thought I really like the upside potential that that could bring especially with the free cash flow.
Guys are bringing so could you just talk about sort of the optionality around that Derek.
You bet you bet in the I'll take the opportunity to talk about why why bring in a third rig and we haven't talked about that previously and in via the Lone Star acquisition, we picked up some really high quality acreage down in Lasalle County, it's quite a ways away from where our rigs are currently executing our plan to date and so rather than move a rig all the way.
They are what makes sense to us is to pick up a spot rig that's a hot rig that's active in the area and we're seeing opportunities to do that the you know it's not the easiest thing today to pick up a drilling rig, but we do think we'll be able to execute on that and drill some wells in the in the horned frog area and they're gonna be very high quality in the top decile of our.
Inventory from a return standpoint, so very high quality acreage and drilling opportunities. So the way we've modeled that as that rig being picked up sort of middle of the year and you don't see a lot of.
A lot of production improvements this year production gains this year, but you know Neal it's all about cash on cash returns and we don't get too fast with the calendar over the quarters, we look at whats the right cash on cash investment decision and that's what we'll do this while we continue to execute our completion program.
Late in the fourth quarter, and we were able to save over $1 million by executing that plan late in the year versus shifting it into early this year and anyway. It's all about cash on cash returns I I hope I answered your original question in there so.
No no no you did and I just hope the market keeps seen that I think your cash on cash returns phenomenal so hoping the market start to recognize it thanks guys.
Thank you.
Again, if you have a question. Please press Star then one.
The next question is from Charles Meade with Johnson Rice. Please go ahead.
Good morning, Darren you and the whole team there.
A couple of things a couple of discrete ones for me.
In your.
On the third rig with respect to the Capex Guide that you gave us how many how many wells or what what duration of of you know of a contract do you have for that for Ah.
A third rig that's implicit in that guide.
Yeah, So I want to be clear, we don't have that rig under contract at this point, we're certainly talking with our industry peers and working to get that rig under contract.
It's a handful of wells as kind of how we're thinking about it but we haven't landed on how many wells it really depends upon what kind of window you can get on that rig if we're if we're born a rig from from one of our industry peers.
They allow us to drill two wells four wells they may allow us to drill more so we havent been real specific area or haven't given out any specific guidance to how many how many wells will drill there it really depends what we can find in the marketplace relative to a hot rig.
Right that makes sense and so but as far as what's in what's your Capex guide we should thank you know three to five or something like that.
Yes, Sir.
Okay, Great and then going back to you on the share buybacks, you mentioned that you're going to be opportunistic with the share buybacks can you talk about what are what your criteria maybe.
You know weather whether it be.
The criteria for for where your your balance sheet or your cash balance needs to be or are versus.
Or maybe your criteria or what you need to see as far as their share price relative to your your view of your asset value.
Sure.
The first quit taking that in a couple parts, what our balance sheet looks like we've talked about this is connected to us hitting our goal of one times, which we expect to hit earlier than originally anticipated we told the market sometime in the first before the end of the first half.
We now anticipate that that will likely be by the end of the first quarter and so that's really the catalyst to us beginning our free cash flow strategy and returning capital to shareholders with regard to how we're going to judge that we talked in the presentation about looking at being opportunistic relative to our intrinsic.
<unk> value the way, we look at that May depend on a lot of market factors, but certainly to the extent that its below PDP value in a way that we can lock that in certainly qualifies for that but obviously we believe.
That we're going to see a significant value creation.
As we go forward in this environment and so we're going to be looking at it a few different ways, but certainly looking across the spectrum on slide 15 of our different options for that free cash flow, we're gonna be making a decision of what is the best use of that free cash flow, both strategically and accretively for shareholders.
Got it that's helpful Brushy, particularly when you look at what are the chances of getting a PDP deal in the A&D market right now versus versus your own valuation that's helpful insight and thank you for it.
This concludes our question and answer session I would like to turn the conference back over to Darin Hanky for any closing remarks.
Yeah, I really appreciate everyone, calling in today and listening to the call.
And you look at Ranger Oil Corporation, we've got the number one EBITDAX margin of all U S. Independence last year was rather transformative we doubled our inventory now have two decades at our current pace of development and future high quality drilling inventory.
We executed a very capital efficient program last year as I mentioned, delivering 375 times Capex return on investment we got a strong balance sheet approaching one times with tremendous free cash flow optionality and we're initiating shareholder friendly.
Strategies.
And all those things up it's a very compelling value opportunity. Thanks.
Thanks for calling in today take care.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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